23 Oct 2014

Twitter's New Business Model

I have never written about Twitter because I always considered it to be a simple consumer service, with a simple monetization model, i.e. it was never particularly interesting. That changed this week when Twitter unveiled Fabric, an SDK for app developers, which takes their business model in a slightly different direction.
First, let's get this out of the way -- Fabric isn't a single SDK, but a set of independent tools that target different use cases. Crashalytics helps developers fix bugs, MoPub helps developers (and Twitter) generate more advertising revenue and Tweet composer/embeds help increase engagement (for both Twitter and developers). While this is interesting, none of this is has much of an impact on Twitter's business model. This takes us to Digits, Twitter's new identity platform.

Digits is effectively a competitor to Facebook and Google sign in, except that it uses a mobile number instead of a social profile to identify users. Twitter's marketing message is that Digits is built on Twitter infrastructure, so it saves developers from the trouble of managing relationships with carriers and SMS exchanges. Since Digits is built on Twitter infrastructure, it immediately gives them access to consumers' app usage habits. To understand the value of this data, we need to look no further than Facebook.

Facebook's social login is integrated with more than 200,000 apps. This gives them a fairly good understanding of app usage habits. Facebook utilized this data to fine tune their targeting algorithm for their mobile app install ads, which has quickly become one of their key revenue drivers. Because of Facebook's success, Twitter followed suit by rolling out app promotion ads earlier this year. Unfortunately, Twitter's social login was not nearly as widely adopted as Facebook's, which made their targeting platform very rudimentary (keyword, demographics, etc.). This is where Digits enters the picture. Essentially, Twitter's goal is to support their mobile advertising business by inserting themselves between platform owners and developers.

Initially, it seems as though Digits will be targeted at apps with a higher proportion of low-end users, i.e. those without much internet experience and deep ties to Facebook or Google. Their hope is that once it gains traction among these users, it would spread to other users and give them a much better picture of app usage habits. I'm not sure how this strategy will play out, but I do know that it makes Twitter a much more interesting company.